Another week, another warning from megabanker JPMorgan (JPM).
Two months ago, as you probably recall, JP spooked stock market investors with news that it had managed to rack up $2 billion worth of losses, trading derivatives on European debt.
Market capitalization was lost. CEOs were subpoenaed. Mea culpas were released ... and life went on.
Then last week we learned that the news from May was much worse than initially feared. On Friday, JPMorgan announced grim second-quarter earnings:
Profits came in at $1.21 per share -- better than expected, but worse than the $1.27 than JP earned last year.
Revenues were also down -- a whopping 17% year over year.
And as far as the trading fiasco goes, instead of losing $2 billion, JP confessed it had actually suffered something closer to a $6 billion loss ($5.8 billion, to be exact).
So how did investors take the news? With a sigh of relief and a wipe of the brow.
Turns out, investors never really thought JP's losses would stop at $2 billion, and had been bracing themselves for a much bigger hit when earnings came out. When the news turned out less dire than feared, they rushed to bid up JP shares by 6%.
But really, they needn't have worried in the first place.
Why not? It's simple math: Over the past 12 months, JPMorgan Chase earned $16.5 billion. Analysts predict it will earn more than $17 billion by the time this year is over, and then earn $21.5 billion more next year! With profits this robust, the occasional $5.8 billion trading loss is ... well, more than a flesh wound, but certainly survivable. And if the analysts are right, next year's profit will cover this year's trading loss nearly four times over, making the London Whale's losses fade quickly into history.
JPMorgan Lost $6 Billion? Buy! Buy! Buy!
BOK (BOKF) is the smallest bank on the list with a $3.8 billion market value and $26 billion in assets. The bank holding company is based in Tulsa, Okla., but its branches operated under several names in other states: Bank of Albuquerque, Bank of Arizona, Bank of Arkansas, Bank of Kansas City, Bank of Oklahoma, Bank of Texas and Colorado State Bank and Trust. BOK is worth about 12.5 times earnings and is valued at 1.3 times book value. The return on equity is 11%, and it offers a 2.7% dividend yield to the common holders. Shares are trading around $56.00, and Wall Street analysts have a target above $59.00.
KeyCorp (KEY) is the one exception in our list to our rule about share prices under $10. Its other metrics more than make up for this. It has a market cap of just $7.12 billion against some $87 billion in assets. It operates in 14 states throughout the Rocky Mountain, Northwest, the Great Lakes and Northeast regions. To make its appearance on this list even more impressive, KeyCorp is headquartered is in Cleveland, where a large number of now-troubled loans were issued. The bank has a return on equity of 9.2% and pays out a 2.7% dividend yield. Shares trade around $7.50 but have a target price of $9 from Wall Street.
PNC (PNC) is based in Pittsburgh and has almost $300 billion in assets, with over 2,500 branches and almost 7,000 ATMs in 14 states. It has a market cap of $31.01 billion, and its stock is valued at 10.6 times earnings and at less than 0.9 times book value. The return on equity is 8.9%, and the company pays out a 2.73% dividend. Shares are trading at under $59, but Wall Street is eyeing a price of $70.50. PNC was even strong enough financially to close its National City acquisition at the end of 2008 when there was so much fear in the financial markets. PNC also owns almost a quarter of the great asset-management firm BlackRock (BLK).
M&T Bank Corporation (MTB) is based in Buffalo, N.Y., and now has more than $79 billion in assets. Excluding any small purchases made recently, M&T had nearly 700 branches, 2,000 ATMs and a presence in eight states. The market cap is $10.12 billion, its P/E ratio is 12.7, and its price-to-book value ratio is only 1.07. M&T has a return on equity of 9.5% and pays out a dividend of 3.5% to common stockholders. The stock is trading just north of $80 a share, but analysts have set a target price of about $90. Berkshire Hathaway owns almost 5.4 million M&T Bank common shares worth more than $400 million.
U.S. Bancorp (USB) is often overlooked as a money-center bank because it is a super-regional located in Minneapolis. But it's the fifth-largest commercial bank in the United States and caters to millions of consumers. With $341 billion in assets, more than 3,000 branch locations and more than 5,000 ATMs, its operations are spread out over 25 states in America. Berkshire Hathaway owns some 69 million shares worth more than $2.1 billion. The bank's market cap is $59 billion. It is worth about 10 times earnings and 1.6 times book value. The return on equity is very high at 16%, and it offers a 2.5% dividend yield to the common holders. Shares are trading around $31.50, and Wall Street analysts have a target of about $34.25 on this great, safe bank.
Despite the media attention surrounding the JPMorgan's (JPM) multibillion-dollar trading loss, the firm is still in good shape compared to many of its peers. It has a fortress-like balance sheet with about $2.3 trillion in assets, and CEO Jamie Dimon has said the only thing that could lead to the bank's failure is a collision of the Earth and Moon. Despite a share price decline following news of the "London Whale" trading loss, the company still has a sizable market cap of $135.17 billion. Shares trade at less than 8 times earnings and only about 0.7 times book value. The return on equity is 9.8%, and the company pays a dividend yield of 3.4% on the common stock. While the bank shares are trading at just over $36, analysts value the company at $47 a share.
Wells Fargo (WFC) is the undisputed safest bank in America now that JPMorgan Chase & Co. (JPM) has come under scrutiny -- even if Chase has about $1 trillion more in assets. With some 6,200 storefront branches, more than 12,000 ATMs and an asset base of over $1.3 trillion, it has a presence in almost every state. Warren Buffett's Berkshire Hathaway owns close to $13 billion worth of the common stock, and his stake keeps rising. The market cap is a whopping $171 billion. The shares trade at less than 9 times earnings and at almost 1.2 times book value. The return on equity is just above 12%, and it offers a 2.7% dividend yield to the common holders. While shares trade at around $32.50, Wall Street analysts value the bank at almost $38 per share.
Simply put, JPMorgan Chase is a fabulously profitable bank. It's not just too big to fail. It's too profitable to be brought down by one year's bad results. And at a forward P/E ratio of less than seven, and paying a dividend yield of 3.3%, the stock's arguably a better bargain today than it was before the trading loss kerfuffle began two months ago.